Value Investing

There are many different investing strategies and philosophies in the market of investment

. Everyone thinks their investing strategy or philosophy is superior to others. The truth is most of them are losing money for their investments. It is difficult to say which strategy or philosophy is the best. But, there is one very famous philosophy called value investing. This value investing is used by one of the most successful investors in the world, Warren Edward Buffett. He is the limited investor that reaps a profit during the unstable financial market condition. It is a good idea to learn from Buffett.

Intrinsic value of a company is what value investors focus on. According to this value investing philosophy, there is a specific intrinsic value of a company at a specific moment of time. This intrinsic is highly affected by the company's own competitiveness. That implies the higher the competitiveness, the higher is the intrinsic value. You may also get an approximate intrinsic value from the stock price. If the market price of the stock is lower than the stock price less your margin of safety, the investment is worth holding.

Looking at the people around you and you may notice that many people buy the stock when its price is low. For a value investor, he or she may not be attracted by the low stock price alone. As mentioned, they focus on the competitiveness, growth, past history and present and future performance of a company instead of the fluctuating stock price.

No matter what type of investors you are, analysis is always a key to successful investments. It is important for you to gather adequate and useful information in order to determine if you will buy, sell or hold a stock. Stock price is affected by supply and demand. When supply and demand change, the stock price changes accordingly. Without useful information on a company's competitiveness and intrinsic value, there is a high risk of wrong decision and financial loss.

Value investing focuses on a steady and prolonged growth. A small increase every year contributes to a significant increase in 20 or 30 years. You may have noticed that in order to have a significant increase in 20 years, you have to hold the investment for 20 years. Value investors agree that there are numerous external factors that can affect the stock price. But, they believe that the whole financial market is in an upward trend in the long run. Therefore, they emphasize on holding of investment instead of short term buy and sell.

Most of the advices from analysts are short term focused. If you wish to practice value investing, you should not read too many of these advices from TV, newspapers and magazines. Instead, you can start analyzing your investment using SWOT analysis. This is a simple but powerful tool to understand the intrinsic value and competitiveness of a company.

by: John Jackson.

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